Zuoan Fashion Limited Announces First Quarter 2014 Financial Results

SHANGHAI, July 29, 2014 /PRNewswire/ -- Zuoan Fashion Limited (NYSE: ZA) ("Zuoan" or the "Company"), a leading design-driven fashion casual menswear company in China, today announced its financial results for the first quarter ended March 31, 2014.

First Quarter 2014 Financial Highlights

• Revenues in the first quarter of 2014 were RMB189.2 million ($30.4 million), a decrease of 36.1% from RMB296.3 million in the same quarter of 2013.
• Gross profit in the first quarter decreased 44.2% year over year to RMB75.5 million ($12.1 million) from RMB135.5 million in the same quarter of 2013.
• Gross margin was 39.9% compared to 45.7% in the prior year period.
• Net income was RMB27.9 million ($4.5 million), a decrease of 62.2% from RMB73.8 million in the same quarter of 2013.
• Diluted earnings per ordinary share was RMB0.25 ($0.04) in the first quarter, equivalent to RMB1.00 ($0.16) per ADS, compared to diluted earnings per ordinary share of RMB0.66 ($0.11) or RMB2.65 ($0.43) per ADS in the first quarter of 2013.

James Hong, Founder, Chairman and Chief Executive Officer, commented, "The ongoing downturn in China's retail industry has had an impact on many retailers and their supply chain partners, including Zuoan. In spite of these challenges, we are pleased to have met our revenue guidance and continue to generate positive cash flows from our operations. Although the general market environment is not expected to improve in the short term, we believe that many of the macro challenges that impacted our business over the last year are slowly abating. As our growth returns to improved levels, we will remain prudent with spending and ensure our resources are applied to the most relevant areas of our business to ensure revenue and profit growth ahead. While many of our smaller competitors are expected to endure more challenges ahead, we are confident Zuoan is on a gradual path to recovery, enabling us to be a stronger player in China's fashion casual menswear industry."

First Quarter 2014 Financial Performance

Revenue for the first quarter of 2014 was RMB189.2 million ($30.4 million), representing a decrease of 36.1% from RMB296.3 million in the same quarter of 2013. This was primarily driven by a decrease in sales volume from company distributors due to the economic downturn in China since 2013 as well as the 3% decrease in wholesale price from the retail price since third quarter of 2013. During the quarter, distributor sales decreased by 36.2% to RMB187.1 million from RMB293.1 million in the same quarter of 2013. First quarter 2014 self-operated direct store sales decreased to RMB2.1 million from RMB3.1 million in the same quarter of 2013.

A net total of 6 distributor and sub-distributor stores were opened and 1 self-operated direct store was closed in the first quarter of 2014, resulting in a total of 1,087 store locations as of March 31, 2014 compared to 1,362 store locations as of March 31, 2013 and 1,082 store locations as of December 31, 2013.

Cost of sales decreased by 29.3% to RMB113.7 million ($18.3 million) in the first quarter of 2014 from RMB160.8 million in the same quarter of 2013, primarily due to the sales decrease in the first quarter. As a percentage of revenues, cost of sales increased to 60.1% in the first quarter of 2014 from 54.3% in the same quarter of 2013.

Gross profit decreased by 44.2% to RMB75.5 million ($12.1 million) from RMB135.5 million in the first quarter of 2013. First quarter 2014 gross margin was 39.9% compared to 45.7% in the same quarter of 2013. The decrease in gross margin was primarily due to the aforementioned decrease in wholesale pricing. Gross margin at the Company's self-operated direct stores and distributor stores was 44.4% and 39.9%, respectively.

Selling and distribution expenses in the first quarter were RMB24.6 million ($4.0 million), or 13.0% of revenue, compared to RMB26.5 million, or 8.9% of revenue in the same quarter of 2013. The percentage increase was primarily due to the increase in the advertising and promotion expenses for the marketing activities carried out to attract the brand awareness since third quarter of 2013.

Administrative expenses in the first quarter were RMB12.4 million ($2.0 million), or 6.5% of revenue, compared to RMB10.3 million, 3.5% of revenue in the same quarter of 2013. This percentage increase was primarily due to the depreciation charges of leasehold improvement of our office building located in Shanghai which has been occupied since second quarter of 2013.

Effective tax rate in the first quarter was 26.0% compared to 25.2% in the same quarter of 2013.

Net income for the first quarter decreased by 62.2% to RMB27.9 million ($4.5 million) from RMB73.8 million in the same quarter of 2013. First quarter net margin was 14.7% compared to 24.9% in the first quarter of 2013.

Diluted earnings per ordinary share were RMB0.25 ($0.04) in the first quarter of 2014, equivalent to RMB1.00 ($0.16) per ADS, compared to diluted earnings per ordinary share RMB0.66 ($0.11) or RMB2.65 ($0.43) per ADS in the first quarter of 2013. The Company's diluted number of shares outstanding were 111.3 million in the first quarter ended March 31, 2014.

As of March 31, 2014, the Company had cash, cash equivalents of RMB1,461.7 million ($235.1 million), compared to RMB1,227.4 million as of December 31, 2013. Net cash provided by operating activities was RMB232.7 million ($37.4 million) in the three months ended March 31, 2014, compared to RMB208.2 million in the three months ended March 31, 2013.

Financial Outlook

For the second quarter of 2014, the Company currently anticipates revenue in the range of RMB230-RMB250 million ($37.0-$40.2 million), gross margin of approximately 30-33%, net loss of approximately RMB3.0-RMB5.0 million ($0.5-$0.8 million) and basic and fully diluted loss per share of approximately RMB0.03 ($0.004)-RMB0.04 ($0.007), equivalent to RMB0.11 ($0.02)-RMB0.18 ($0.03) per ADS.

Approximately 160-180 net retail stores are expected to be closed by distributors and sub-distributors in the second quarter of 2014. 

Conference Call Information

Zuoan's management will host a conference call on July 29th, 2014 at 8:30 AM ET to discuss financial results. Listeners may access the call by dialing #1-719-325-2454. A webcast will also be available via http://public.viavid.com/index.php?id=110196. A replay of the call will be available through August 5th, 2014 by dialing #1-858-384-5517, access code: 8079702.

Exchange Rate

This announcement contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the exchange rate of RMB 6.2164 to US$1.00, as set forth in the H.10 statistical release of the Federal Reserve Board on March 31, 2014.

About Zuoan Fashion Limited

Zuoan Fashion Limited is a leading design-driven fashion casual menswear company in China, and is head-quartered in Shanghai. Zuoan offers a wide range of products, including men's casual apparel, footwear and lifestyle accessories, primarily targeting urban males between the ages of 20 and 40 who prefer stylish clothing that represents a sophisticated lifestyle. Through extensive networks of distributors and retail stores, Zuoan sells its products in 31 of China's 32 provinces and municipalities. As of March 31, 2014, Zuoan had 1,087 stores located in China.

Safe Harbor

This news release may contain forward-looking information about Zuoan Fashion Limited, which is covered under the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward- looking terminology such as believe, expect, may, will, should, project, plan, seek, intend, or anticipate or the negative thereof or comparable terminology, and include discussions of strategy, and statements about industry trends and Zuoan Fashion Limited's future performance, operations, and products.

Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Actual performance results may vary significantly from expectations and projections. Further information regarding this and other risk factors are contained in Zuoan's public filings with the U.S. Securities and Exchange Commission.

All information provided in this news release and in any attachments is as of the date of the release, and the companies do not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law.

Contact Information

John Low
Email: [email protected]

ICR, LLC
William Zima
Phone: +86-10-6583-7511

Zuoan Investor Relations Department
US: 1-646-308-1614

SOURCE Zuoan Fashion Limited

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